Money laundering

 

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Key principles
  • In England and Wales, any individual or corporate that deals in criminal property may be liable under the Proceeds of Crime Act 2002 (POCA) for one of the three primary money laundering offences: concealing, disguising, converting or transferring the proceeds of crime (section 327); assisting or abetting such conduct (section 328); or handling the proceeds of crime (section 329).

    The National Crime Agency (NCA) can provide a defence to any offence of money laundering. Any entity that is likely to deal with the proceeds of criminal activity should disclose the relevant transaction to the NCA. After disclosure, the NCA has a seven working day period in which to consider the activity and provide or refuse a “Defence Against Money Laundering” (DAML). Previously known as “consent”, the NCA changed its terminology to DAML following concerns that reporters of Suspicious Activity Reports (SARs) were seeking consent without fully understanding the money laundering provisions.

    Firms conducting business in the regulated sector (typically financial and credit institutions, accountants, tax advisers and other professionals) are also obliged to disclose their knowledge or suspicion, or reasonable grounds for such, that another person is engaged in money laundering to the NCA. Disclosure is made in the form of a SAR. The obligation arises only if the information on which knowledge or suspicion is based came to the firm in the course of its business in the regulated sector. Failure to disclose such knowledge or suspicion constitutes an offence under section 330 POCA.

    It is an offence for a person to disclose to another that an investigation into money laundering allegations is taking place, or, in the regulated sector, to “tip off” a person that a SAR has been submitted, where that disclosure is likely to prejudice the investigation (sections 333A and 342 POCA).

Recent developments
    • The NCA has published its statistics in relation to SARs in 2018, disclosing that it had received 463,938 SARs, a record number, with 22,619 of those requests being for a defence against money laundering. These led to 40 arrests across 28 different cases. One particular money laundering investigation initiated by a SAR involved an international money laundering network and led to a number of individuals receiving prison sentences and over £600,000 confiscated and seized.

    • The Financial Action Taskforce (FATF) has released its 2018 mutual evaluation report on the UK’s measures to combat money laundering and terrorist financing, giving it the highest score of all jurisdictions that have been evaluated, with top marks in 8 of 11 key areas. The report found that the UK is “a global leader in promoting corporate transparency and has a good understanding of the money laundering/terrorist financing risks posed by legal persons and arrangements”. Features of the UK anti-money laundering and terrorist financing regime that were praised included the outreach activities conducted by Anti Money Laundering (AML) supervisors, and the implementation of targeted financial sanctions which relate to terrorism and proliferation, and which protect the non-profit sector from terrorist abuse. Some key recommendations by the FATF include that the UK’s Financial Intelligence Unit needs more human and technological resources to handle the growing number of SARs, as well as improving the consistency of AML supervision.

    • The Law Commission published its consultation paper on the SARs regime on 20 July 2018. The paper has 3 principal aims:
      • to identify the most pressing problems
      • to consult on reforming the consent regime, and
      • to generate and consider ideas for long-term reform.

                 The consultation period closed on 05 October 2018 and we await the findings.

    • On 06 November 2018, the Law Society published its response to the consultation paper. The Law Society was of the view that many of the Law Commission’s suggestions would “only tinker around the edges of the SARs reporting regime” and would not significantly reduce the reporting burden. The Law Society recommended two major changes for the SARs regime:
      • To introduce a reasonable excuse defence for failure to report specific offences on a “de-scoped list” which contains offences that generate “low value intelligence” (for example, failures to obtain licenses and minor regulatory offences), and
      • To have statutory guidance on reasonable excuses, which could reduce the number of low value SARs received by the NCA.

    • On 15 April 2019, HM Treasury (HMT) published its consultation on the transposition of the Fifth Money Laundering Directive (5MLD) into UK law. The consultation seeks views and evidence on the steps that the government proposes to take to fulfil the UK’s obligation to transpose 5MLD. 5MLD came into force on 20 June 2018, and Member States (and for now the UK) have until 10 January 2020 to implement the legislation. Key changes include (amongst others) bringing virtual currency exchange platforms and custodian wallet providers within the scope of 4MLD.

      The consultation document indicates that the UK government is considering the “gold plating” of 5MLD in certain areas, including bringing additional crypto-businesses within the scope of AML controls and extending UK requirements to businesses based outside of the UK. The deadline for responding to the consultation is on 10 June 2019. Following the consultation process, HMT will issue proposed amendments to the UK’s existing AML legislation.

    • On 12 November 2018, the sixth EU money laundering directive (6MLD) directive 2018/1673 was published in the Official Journal of the EU.

      The 6MLD complements the criminal aspects of the 5MLD. Some of the key proposals are as follows:

      • Money laundering offences in Member States will be punishable by a maximum imprisonment term of four years alongside discretionary additional sanctions.
      • Organisations may be liable for money laundering offences where (i) the offence was committed for the benefit of the organisation and (ii) those who have the power to represent, make decisions for and exercise control within the organisation (ie its controlling minds) have either committed the offence or allowed the offence to be committed through a lack of supervision. This will be a more radical change in those Member States where corporate criminal liability is not generally recognised.
      • The proceeds from new types of criminal activities have been brought into scope money laundering, such as environmental crimes (not yet defined), certain tax crimes and cybercrime, and
      • Certain specified factors should be considered in determining which European state has jurisdiction in cases where an offence could be prosecuted in multiple states and, where appropriate, the matter should be referred to Eurojust.

     Member States are expected to transpose the 6MLD into their laws by 3 December 2020. 

     For our in-depth article on the impacts of these powers, please click here.

    • In October 2018, the High Court published its judgment in the first challenge to an Unexplained Wealth Order (UWO) in the matter of National Crime Agency v Mrs A, finding in favour of the NCA. This was a relatively clear-cut case for the NCA to test the first UWO. In June 2018, however, the Head of the NCA’s Economic Crime Command suggested that there were as many as 140 potential UWOs under consideration.

      For more on this case, see our article.
Practical tips in an investigation
    • If an investigation uncovers suspected criminal activity, it is important to consider the related money flows and potential POCA liability: Which individuals or entities have received or might be receiving proceeds of crime? Who might possess criminal proceeds, and who might want to deal with such proceeds in future?

    • Only regulated firms are under an obligation to disclose suspected money laundering - and in specific circumstances where they suspect money laundering by another person because of information received as part of their regulated business. In all other circumstances, disclosure is voluntary and will only be necessary if consent is needed in advance to deal in criminal proceeds.

    • The submission of a SAR requires careful consideration of the consequences, including the possibility that the NCA will share the information with other law enforcement agencies in the UK or overseas for further investigation. If an entity is obliged to submit a SAR, or believes that a third party (such as an auditor) may be required to submit a SAR as a result of information unearthed during an investigation, careful thought should also be given to proactive self-reporting to other authorities.
International perspective
  • Whilst the anti-money laundering laws and regulations of many business and financial centres share similar features, the laws of some jurisdictions differ on what relevant authorities consider to be a proceed of crime. For example, in jurisdictions that do not have an income tax regime, and therefore no laws against tax evasion, local legal advice might be required to determine whether suspicions about a person evading tax from another jurisdiction (where tax evasion is a crime) gives rise to an obligation to report to the relevant anti-money laundering authorities.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.